State of Organic Industry Part 1

Organic dairy poised for the ‘next level of penetration’ even as US dairy milk sales fall

By Elizabeth Crawford

- Last updated on GMT

Organic dairy poised for the ‘next level of penetration’ even as US dairy milk sales fall
While overall US dairy milk sales are in virtual freefall, the organic industry has managed to stay one step ahead so far, but it is nearing saturation with fluid milk and needs to find new outlets to reach the “next level of penetration,” according to an executive with Organic Valley.

“Since I have been at Organic Valley in the last 15 years, we have focused on putting half gallons of milk on the shelf and … now we are seeing, I would say, a saturation”​ in this area, and “we are in a milk heavy world right now,”​ Melissa Hughes, chief mission officer and general counsel, said at Natural Products Expo West.

Indeed, market research firm Mintel predicts​ that US dairy milk sales overall will fall 11% to $15.9 billion from 2015 through 2020, due in part to consumers reaching for other beverages, such as plant-based dairy alternatives, sales of which will grow from $2 billion to $3 billion by 2020.

Hughes suggested organic dairy milk has been sheltered somewhat from consumer interest in plant-based milk, but that it is experiencing some related declines.

“At my local co-op I will always see someone with a half-gallon of Organic Valley grass fed milk or regular milk in their cart, and then they also will have a half gallon of rice milk or coconut milk. So, they are exploring these different types of beverages,”​ she said.

In response, she said, the organic dairy industry needs to push against the door to the next level of penetration, which might include taking share from conventional dairy milk by advancing distribution of organic dairy products in food service.

“You can easily find a two-pound bag of organic cheese at Costco, but you can’t as easily buy a pizza with organic cheese on it. Or you can go to Starbucks … and there is no conversation about organic milk in that coffee, even though Starbucks is the largest user of milk in the United States,”​ she said, adding: “How do we make it to that next level?”

She also suggests organic dairy needs to develop more non-fluid milk products, which won’t face the same competition from plant-based alternatives.

“Where else can we go? Is it yogurt or cheese? We need to develop other markets where folks aren’t making the same decisions they are in the fluid world about rice or coconut,”​ she said, noting, for example, “when it comes to cheese, everybody still loves a good dairy cheese.”

Finally, she said, the organic dairy industry needs to step up its consumer education efforts around the health benefits of dairy.

“We have kind of left that to the conventional world and I think it is time to take another look at that. We do all our education for our consumers at Organic Valley about organic and the benefits of organic. So, it is like, how do we weave in now some more conversation about dairy and the benefits for young children, for adults,”​ she said.

Managing skim milk as demand for whole rises

Another challenge facing the organic dairy industry is the question of what to do with skim milk, which has fallen out of vogue with the rise of consumer interest in saturated fat from “properly raised animals,”​ noted Tracy Miedema, vice president of innovation and development with Presence Marketing.

Hughes agreed that butter, half and half and cream are growing at “tremendous rates,”​ which leaves the industry with skim milk as a byproduct.

She explained that this is “the exact opposite of the problem we had five years ago, where we were trying to figure out what to do with butter and fat. They were a waste product in the dairy industry. Now, that has really flipped, and we are looking at how can we take advantage of this moment and be able to provide consumers with the whole fats they are looking for and at the same time find something really productive to do with the skim milk”​ that is now the byproduct.

One possible solution is to use skim milk to make protein drinks, protein powder or infant formula, she noted. But, she said, “it is a real challenge in our supply chain,”​ and more solutions are needed.

Overall, Hughes said, while the organic dairy industry faces some challenges it “will push through … to the next level of places where we can grow organic dairy and really help our farmers succeed.”

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